exv10w74



 






Exhibit 10.74




PLEDGE AND SECURITY AGREEMENT




     THIS PLEDGE AND SECURITY AGREEMENT (as it may be amended or modified from
time to time, this “Security Agreement”) is entered into as of June 30, 2004 by
and among ACTION PERFORMANCE COMPANIES, INC., an Arizona corporation (“APC” or
“Company”), ACTION RACING COLLECTABLES, INC., an Arizona corporation (“ARC”),
ACTION SPORTS IMAGE, L.L.C., an Arizona limited liability company (“ASI”),
FUNLINE MERCHANDISE COMPANY, INC., a California corporation (“Funline”), JEFF
HAMILTON COLLECTION, INC., an Arizona corporation (“Hamilton”), MCARTHUR TOWEL
AND SPORTS, INC., an Arizona corporation (“McArthur”), RACING COLLECTABLES CLUB
OF AMERICA, INC., an Arizona corporation (“RCCA”), TREVCO TRADING CORP., an
Arizona corporation (“Trevco”), ACTION CORPORATE SERVICES, INC., an Arizona
corporation, AW ACQUISITION CORP., an Arizona corporation, CREATIVE MARKETING &
PROMOTIONS, INC., a North Carolina corporation, GORACING.COM, INC., an Arizona
corporation, GORACING INTERACTIVE SERVICES, INC., an Arizona corporation, RYP,
INC., a North Carolina corporation, THE FAN CLUB COMPANY, L.L.C., an Arizona
limited liability company (each a “Grantor” and collectively, jointly and
severally, the “Grantors”), and BANK ONE, NA, a national banking association
having its principal office in Chicago, Illinois, in its capacity as agent (the
“Agent”) for itself and the other lenders a party to the Credit Agreement
referred to below.



PRELIMINARY STATEMENT




     The Grantors, the Agent and the Lenders are entering into an Amended and
Restated Credit Agreement dated as of the date hereof (as it may be amended or
modified from time to time, the “Credit Agreement”).



     Each Grantor is entering into this Security Agreement in order to induce
the Lenders to enter into and extend credit to the Borrowers under the Credit
Agreement and to secure the Secured Obligations that it has agreed to guarantee
pursuant to Article XV of the Credit Agreement.



     ACCORDINGLY, the Grantors and the Agent, on behalf of the Lenders, hereby
agree as follows:



ARTICLE I

DEFINITIONS




     1.1. Terms Defined in Credit Agreement. All capitalized terms used herein
and not otherwise defined shall have the meanings assigned to such terms in the
Credit Agreement.



     1.2. Terms Defined in UCC. Terms defined in the UCC which are not
otherwise defined in this Security Agreement are used herein as defined in the
UCC.



     1.3. Definitions of Certain Terms Used Herein. As used in this Security
Agreement, in addition to the terms defined in the Preliminary Statement, the
following terms shall have the following meanings:



     “Accounts” shall have the meaning set forth in Article 9 of the UCC.



     “Article” means a numbered article of this Security Agreement, unless
another document is specifically referenced.



(APC) Pledge and Security Agreement




 









 








     “Assigned Contracts” means, collectively, all of the Grantors’ rights and
remedies under, and all moneys and claims for money due or to become due to the
Grantors under those contracts set forth on Exhibit J hereto, and any other
material contracts, and any and all amendments, supplements, extensions, and
renewals thereof including all rights and claims of the Grantors now or
hereafter existing: (a) under any insurance, indemnities, warranties, and
guarantees provided for or arising out of or in connection with any of the
foregoing agreements; (b) for any damages arising out of or for breach or
default under or in connection with any of the foregoing contracts; (c) to all
other amounts from time to time paid or payable under or in connection with any
of the foregoing agreements; or (d) to exercise or enforce any and all
covenants, remedies, powers and privileges thereunder.



     “Borrower Representative” shall have the meaning set forth in the Credit
Agreement.



     “Chattel Paper” shall have the meaning set forth in Article 9 of the UCC.



     “Collateral” shall have the meaning set forth in Article II.



     “Collateral Deposit Account” shall have the meaning set forth in Section
7.1(a).



     “Collateral Report” means any certificate (including any Borrowing Base
Certificate), report or other document delivered by any Grantor to the Agent or
any Lender with respect to the Collateral pursuant to any Loan Document.



     “Collection Account” shall have the meaning set forth in Section 7.1(b).



     “Commercial Tort Claims” means the existing commercial tort claims of the
Grantors as described on Exhibit K.



     “Control” shall have the meaning set forth in Article 8 or, if applicable,
in Section 9-104, 9-105, 9-106 or 9-107 of Article 9 of the UCC.



     “Copyrights” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following: (a) all copyrights, rights
and interests in copyrights, works protectable by copyright, copyright
registrations, and copyright applications; (b) all renewals of any of the
foregoing; (c) all income, royalties, damages, and payments now or hereafter
due and/or payable under any of the foregoing, including, without limitation,
damages or payments for past or future infringements for any of the foregoing;
(d) the right to sue for past, present, and future infringements of any of the
foregoing; and (e) all rights corresponding to any of the foregoing throughout
the world.



     “Copyright Security Agreement” means that certain Copyright Security
Agreement, dated the date hereof, among the Grantors and Agent, for the lenders
party to the Credit Agreement.



     “Default” means an event described in Section 5.1.



     “Deposit Accounts” shall have the meaning set forth in Article 9 of the
UCC.



     “Documents” shall have the meaning set forth in Article 9 of the UCC.



APC PLEDGE AND SECURITY AGREEMENT — Page 2




 









 








     “Equipment” shall have the meaning set forth in Article 9 of the UCC.



     “Exhibit” refers to a specific exhibit to this Security Agreement, unless
another document is specifically referenced.



     “Fixtures” shall have the meaning set forth in Article 9 of the UCC.



     “General Intangibles” shall have the meaning set forth in Article 9 of the
UCC.



     “Goods” shall have the meaning set forth in Article 9 of the UCC.



     “Instruments” shall have the meaning set forth in Article 9 of the UCC.



     “Inventory” shall have the meaning set forth in Article 9 of the UCC.



     “Investment Property” shall have the meaning set forth in Article 9 of the
UCC.



     “IP Security Agreements” means, individually and collectively, the
Copyright Security Agreement, the Patent Security Agreement and the Trademark
Security Agreement.



     “Lenders” means the lenders party to the Credit Agreement and their
successors and assigns.



     “Letter-of-Credit Rights” shall have the meaning set forth in Article 9 of
the UCC.



     “Licenses” means, with respect to any Person, all of such Person’s right,
title, and interest in and to (a) any and all licensing agreements or similar
arrangements in and to its Patents, Copyrights, or Trademarks, (b) all income,
royalties, damages, claims, and payments now or hereafter due or payable under
and with respect thereto, including, without limitation, damages and payments
for past and future breaches thereof, and (c) all rights to sue for past,
present, and future breaches thereof.



     “Lock Boxes” shall have the meaning set forth in Section 7.1(a).



     “Lock Box Agreements” shall have the meaning set forth in Section 7.1(a).



     “Patents” means, with respect to any Person, all of such Person’s right,
title, and interest in and to: (a) any and all patents and patent applications;
(b) all inventions and improvements described and claimed therein; (c) all
reissues, divisions, continuations, renewals, extensions, and
continuations-in-part thereof; (d) all income, royalties, damages, claims, and
payments now or hereafter due or payable under and with respect thereto,
including, without limitation, damages and payments for past and future
infringements thereof; (e) all rights to sue for past, present, and future
infringements thereof; and (f) all rights corresponding to any of the foregoing
throughout the world.



     “Patent Security Agreement” means that certain Patent Security Agreement,
dated the date hereof, among the Grantors and Agent, for the lenders party to
the Credit Agreement.



     “Pledged Collateral” means all Instruments, Securities and other
Investment Property of the Grantors, whether or not physically delivered to the
Agent pursuant to this Security Agreement.



APC PLEDGE AND SECURITY AGREEMENT — Page 3




 









 








     “Receivables” means the Accounts, Chattel Paper, Documents, Investment
Property, Instruments and any other rights or claims to receive money which are
General Intangibles or which are otherwise included as Collateral.



     “Required Secured Parties” means (a) prior to an acceleration of the
obligations under the Credit Agreement, the Required Lenders, (b) after an
acceleration of the obligations under the Credit Agreement but prior to the
date upon which the Credit Agreement has terminated by its terms and all of the
obligations thereunder have been paid in full, Lenders holding in the aggregate
at least a majority of the total of the Aggregate Credit Exposure, and (c)
after the Credit Agreement has terminated by its terms and all of the
obligations thereunder have been paid in full (whether or not the obligations
under the Credit Agreement were ever accelerated), Lenders holding in the
aggregate at least a majority of the aggregate net early termination payments
and all other amounts then due and unpaid from any Grantor to the Lenders under
Rate Management Transactions, as determined by the Agent in its reasonable
discretion.



     “Section” means a numbered section of this Security Agreement, unless
another document is specifically referenced.



     “Security” has the meaning set forth in Article 8 of the UCC.



     “Stock Rights” means all dividends, instruments or other distributions and
any other right or property which the Grantors shall receive or shall become
entitled to receive for any reason whatsoever with respect to, in substitution
for or in exchange for any Capital Stock constituting Collateral, any right to
receive Capital Stock and any right to receive earnings, in which the Grantors
now have or hereafter acquire any right, issued by an issuer of such Capital
Stock.



     “Supporting Obligations” shall have the meaning set forth in Article 9 of
the UCC.



     “Trademarks” means, with respect to any Person, all of such Person’s
right, title, and interest in and to the following: (a) all trademarks
(including service marks), trade names, trade dress, and trade styles and the
registrations and applications for registration thereof and the goodwill of the
business symbolized by the foregoing; (b) all licenses of the foregoing,
whether as licensee or licensor; (c) all renewals of the foregoing; (d) all
income, royalties, damages, and payments now or hereafter due or payable with
respect thereto, including, without limitation, damages, claims, and payments
for past and future infringements thereof; (e) all rights to sue for past,
present, and future infringements of the foregoing, including the right to
settle suits involving claims and demands for royalties owing; and (f) all
rights corresponding to any of the foregoing throughout the world.



     “Trademark Security Agreement” means that certain Trademark Security
Agreement, dated the date hereof, among the Grantors and Agent, for the lenders
party to the Credit Agreement.



     “UCC” means the Uniform Commercial Code, as in effect from time to time,
of the State of Texas or of any other state the laws of which are required as a
result thereof to be applied in connection with the attachment, perfection or
priority of, or remedies with respect to, Agent’s or any Lender’s Lien on any
Collateral.



     “Unmatured Default” means an event which but for the lapse of time or the
giving of notice, or both, would constitute a Default hereunder.



APC PLEDGE AND SECURITY AGREEMENT — Page 4




 









 








     The foregoing definitions shall be equally applicable to both the singular
and plural forms of the defined terms.



ARTICLE II

GRANT OF SECURITY INTEREST




     Each Grantor hereby pledges, assigns and grants to the Agent, on behalf of
and for the ratable benefit of the Lenders, a security interest in all of its
right, title and interest in, to and under all personal property and other
assets, whether now owned by or owing to, or hereafter acquired by or arising
in favor of such Grantor (including under any trade name or derivations
thereof), and whether owned or consigned by or to, or leased from or to, such
Grantor, and regardless of where located (all of which will be collectively
referred to as the “Collateral”), including:




	(i)	 	all Accounts;
	 
	(ii)	 	all Chattel Paper;
	 
	(iii)	 	all Documents;
	 
	(iv)	 	all Equipment;
	 
	(v)	 	all Fixtures;
	 
	(vi)	 	all General Intangibles;
	 
	(vii)	 	all Goods;
	 
	(viii)	 	all Instruments;
	 
	(ix)	 	all Inventory;
	 
	(x)	 	all Investment Property;
	 
	(xi)	 	all cash or cash equivalents;
	 
	(xii)	 	all letters of credit, Letter-of-Credit Rights and Supporting Obligations;
	 
	(xiii)	 	all Deposit Accounts with any bank or other financial institution;
	 
	(xiv)	 	all Commercial Tort Claims;
	 
	(xv)	 	all Assigned Contracts; and
	 
	(xvi)	 	all accessions to, substitutions for
and replacements, proceeds (including Stock Rights),
insurance proceeds and products of the foregoing,
together with all books and records, customer lists,
credit files, computer files, programs, printouts and
other computer materials and records related thereto and
any General Intangibles at any time evidencing or
relating to any of the foregoing;





to secure the prompt and complete payment and performance of the Secured
Obligations. Such grant of a security interest shall not extend to, and the
term “Collateral” shall not include, permits, licenses, leases or other
contracts of a Borrower to the extent that (but only to the extent that) (i)
they are not assignable or capable of being encumbered as a matter of law or
under the terms of any license or other agreement applicable



APC PLEDGE AND SECURITY AGREEMENT — Page 5




 









 








thereto (but solely to the extent that any such restriction shall be
enforceable under applicable law) without the consent of the licensor thereof
or other applicable party thereto, and (ii) such consent has not been obtained,
but upon obtaining the consent of any such licensor or other applicable party
with respect to any such matter excluded under the preceding clause as well as
any and all proceeds thereof that might theretofore have been excluded from
such grant of a security interest and from the term “Collateral”, the term
“Collateral” shall thereafter automatically include such permit, license, lease
or other contract.



ARTICLE III

REPRESENTATIONS AND WARRANTIES




     Each Grantor represents and warrants to the Agent and the Lenders that:



     3.1. Title, Perfection and Priority. Such Grantor has good and valid
rights in or the power to transfer the Collateral and title to the Collateral
with respect to which it has purported to grant a security interest hereunder,
free and clear of all Liens except for Liens permitted under Section 4.1(e),
and has full power and authority to grant to the Agent the security interest in
such Collateral pursuant hereto. When financing statements have been filed in
the appropriate offices against such Grantor in the locations listed on Exhibit
H, the Agent will have a fully perfected first priority security interest in
that Collateral of the Grantor in which a security interest may be perfected by
filing, subject only to Liens permitted under Section 4.1(e).



     3.2. Type and Jurisdiction of Organization, Organizational and
Identification Numbers. The type of entity of such Grantor, its state of
organization, the organizational number issued to it by its state of
organization and its federal employer identification number are set forth on
Exhibit A.



     3.3. Principal Location. Such Grantor’s mailing address and the location
of its place of business (if it has only one) or its chief executive office (if
it has more than one place of business), are disclosed in Exhibit A; such
Grantor has no other places of business except those set forth in Exhibit A.



     3.4. Collateral Locations. All of such Grantor’s locations where
Collateral is located are listed on Exhibit A. All of said locations are owned
by such Grantor except for locations (i) which are leased by the Grantor as
lessee and designated in Part VII(b) of Exhibit A and (ii) at which Inventory
is held in a public warehouse or is otherwise held by a bailee or on
consignment as designated in Part VII(c) of Exhibit A.



     3.5. Deposit Accounts. All of such Grantor’s Deposit Accounts are listed
on Exhibit B.



     3.6. Exact Names. Such Grantor’s name in which it has executed this
Security Agreement is the exact name as it appears in such Grantor’s
organizational documents, as amended, as filed with such Grantor’s jurisdiction
of organization.



     3.7. Letter-of-Credit Rights and Chattel Paper. Exhibit C lists all
Letter-of-Credit Rights and Chattel Paper of such Grantor. All action by such
Grantor necessary or desirable to protect and perfect the Agent’s Lien on each
item listed on Exhibit C (including the delivery of all originals and the
placement of a legend on all Chattel Paper as required hereunder) has been duly
taken. The Agent will have a fully perfected first priority security interest
in the Collateral listed on Exhibit C, subject only to Liens permitted under
Section 4.1(e).



APC PLEDGE AND SECURITY AGREEMENT — Page 6




 









 








     3.8. Accounts and Chattel Paper.



          (a) The names of the obligors, amounts owing, due dates and other
information with respect to its Accounts and Chattel Paper are and will be
correctly stated in all records of the Grantor relating thereto and in all
invoices and Collateral Reports with respect thereto furnished to the Agent by
such Grantor from time to time. As of the time when each Account or each item
of Chattel Paper arises, such Grantor shall be deemed to have represented and
warranted that such Account or Chattel Paper, as the case may be, and all
records relating thereto, are genuine and in all respects what they purport to
be.



          (b) With respect to its Accounts, except as specifically disclosed on the
most recent Collateral Report, (i) all Accounts are Eligible Accounts; (ii) all
Accounts represent bona fide sales of Inventory or rendering of services to
Account Debtors in the ordinary course of such Grantor’s business and are not
evidenced by a judgment, Instrument or Chattel Paper; (iii) to such Grantor’s
knowledge, there are no setoffs, claims or disputes existing or asserted with
respect thereto and such Grantor has not made any agreement with any Account
Debtor for any extension of time for the payment thereof, any compromise or
settlement for less than the full amount thereof, any release of any Account
Debtor from liability therefor, or any deduction therefrom except a discount or
allowance allowed by such Grantor in the ordinary course of its business; (iv)
to such Grantor’s knowledge, there are no facts, events or occurrences which in
any way impair the validity or enforceability thereof or could reasonably be
expected to reduce the amount payable thereunder as shown on such Grantor’s
books and records and any invoices, statements and Collateral Reports with
respect thereto; (v) such Grantor has not received any notice of proceedings or
actions which are threatened or pending against any Account Debtor which could
reasonably be expected to result in any material adverse change in such Account
Debtor’s financial condition; and (vi) such Grantor has no knowledge that any
Account Debtor is unable generally to pay its debts as they become due.



          (c) In addition, with respect to all of its Accounts, (i) the amounts
shown on all invoices, statements and Collateral Reports with respect thereto
are actually and absolutely owing to such Grantor as indicated thereon and are
not in any way contingent; (ii) no payments have been or shall be made thereon
except payments promptly delivered to a Lock Box or a Collateral Deposit
Account as required pursuant to Section 7.1; and (iii) to such Grantor’s
knowledge, all Account Debtors have the capacity to contract.



     3.9. Inventory. With respect to any of its Inventory scheduled or listed
on the most recent Collateral Report, (a) such Inventory (other than Inventory
in transit) is located at one of such Grantor’s locations set forth on Exhibit
A, (b) no Inventory (other than Inventory in transit) is now, or shall at any
time or times hereafter be stored at any other location except as permitted by
Section 4.1(g), (c) such Grantor has good, indefeasible and merchantable title
to such Inventory and such Inventory is not subject to any Lien or security
interest or document whatsoever except for the Lien granted to the Agent, for
the benefit of the Agent and Lenders, and except for Permitted Liens, (d)
except as specifically disclosed in the most recent Collateral Report, such
Inventory is Eligible Inventory of good and merchantable quality, free from any
defects, (e) such Inventory is not subject to any licensing, patent, royalty,
trademark, trade name or copyright agreements with any third parties which
would require any consent of any third party upon sale or disposition of that
Inventory or the payment of any monies to any third party upon such sale or
other disposition, (f) such Inventory has been produced in accordance with the
Federal Fair Labor Standards Act of 1938, as amended, and all rules,
regulations and orders thereunder and (g) the completion of manufacture, sale
or other disposition of such Inventory by the Agent following a Default shall
not require the consent of any Person and shall not constitute a breach or
default under any contract or agreement to which such Grantor is a party or to
which such property is subject.



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     3.10. Intellectual Property. Such Grantor does not have any interest in,
or title to, any Patent, Trademark or Copyright except as set forth in Exhibit
D. This Security Agreement is effective to create a valid and continuing Lien
and, upon filing of this Security Agreement with the United States Copyright
Office and the United States Patent and Trademark Office, fully perfected first
priority security interests in favor of the Agent on such Grantor’s Patents,
Trademarks and Copyrights, such perfected security interests are enforceable as
such as against any and all creditors of and purchasers from the Grantor and,
upon the filing of appropriate financing statements listed on Exhibit H and the
IP Security Agreements, all action necessary or desirable to protect and
perfect the Agent’s Lien on such Grantor’s Patents, Trademarks or Copyrights
shall have been duly taken.



     3.11. Filing Requirements. None of its Equipment is covered by any
certificate of title, except for automobiles and other motor vehicles used in
the ordinary course of Grantors’ business. None of the Collateral owned by it
is of a type for which security interests or liens may be perfected by filing
under any federal statute except for (a) the vehicles described in Exhibit E
and (b) Patents, Trademarks and Copyrights held by such Grantor and described
in Exhibit D. The legal description, county and street address of each
property on which any Fixtures are located is set forth in Exhibit F together
with the name and address of the record owner of each such property.



     3.12. No Financing Statements, Security Agreements. No financing
statement or security agreement describing all or any portion of the Collateral
which has not lapsed or been terminated naming such Grantor as debtor has been
filed or is of record in any jurisdiction except (a) for financing statements
or security agreements naming the Agent on behalf of the Lenders as the secured
party and (b) as permitted by Section 4.1(e).



     3.13. Pledged Collateral.



          (a) Exhibit G sets forth a complete and accurate list of all Pledged
Collateral owned by such Grantor. Such Grantor is the direct, sole beneficial
owner and sole holder of record of the Pledged Collateral listed on Exhibit G
as being owned by it, free and clear of any Liens, except for the security
interest granted to the Agent for the benefit of the Lenders hereunder. Such
Grantor further represents and warrants that (i) all Pledged Collateral owned
by it constituting Capital Stock has been (to the extent such concepts are
relevant with respect to such Pledged Collateral) duly authorized, validly
issued, are fully paid and non-assessable, (ii) with respect to any
certificates delivered to the Agent representing Capital Stock, either such
certificates are Securities as defined in Article 8 of the UCC as a result of
actions by the issuer or otherwise, or, if such certificates are not
Securities, such Grantor has so informed the Agent so that the Agent may take
steps to perfect its security interest therein as a General Intangible, (iii)
all such Pledged Collateral held by a securities intermediary is covered by a
control agreement among such Grantor, the securities intermediary and the Agent
pursuant to which the Agent has Control and (iv) all Pledged Collateral which
represents Indebtedness owed to such Grantor has been duly authorized,
authenticated or issued and delivered by the issuer of such Indebtedness, is
the legal, valid and binding obligation of such issuer and such issuer is not
in default thereunder.



          (b) In addition, (i) none of the Pledged Collateral owned by it has been
issued or transferred in violation of the securities registration, securities
disclosure or similar laws of any jurisdiction to which such issuance or
transfer may be subject, (ii) there are existing no options, warrants, calls or
commitments of any character whatsoever relating to such Pledged Collateral or
which obligate the issuer of



APC PLEDGE AND SECURITY AGREEMENT — Page 8




 









 








any Capital Stock included in Pledged Collateral to issue additional
Capital Stock, and (iii) no consent, approval, authorization, or other action
by, and no giving of notice, filing with, any governmental authority or any
other Person is required for the pledge by such Grantor of such Pledged
Collateral pursuant to this Security Agreement or for the execution, delivery
and performance of this Security Agreement by such Grantor, or for the exercise
by the Agent of the voting or other rights provided for in this Security
Agreement or for the remedies in respect of the Pledged Collateral pursuant to
this Security Agreement, except as may be required in connection with such
disposition by laws affecting the offering and sale of securities generally.



          (c) Except as set forth in Exhibit G, such Grantor owns 100% of the issued
and outstanding Capital Stock which constitutes Pledged Collateral and none of
the Pledged Collateral which represents Indebtedness owed to such Grantor is
subordinated in right of payment to other Indebtedness or subject to the terms
of an indenture.



ARTICLE IV

COVENANTS




     From the date of this Security Agreement, and thereafter until this
Security Agreement is terminated:



     4.1. General.



          (a) Collateral Records. Such Grantor will maintain complete and accurate
books and records with respect to the Collateral owned by it, and furnish to
the Agent, with sufficient copies for each of the Lenders, such reports
relating to such Collateral as the Agent shall from time to time request,
subject to any limitations set forth in the Credit Agreement.



          (b) Authorization to File Financing Statements; Ratification. Such
Grantor hereby authorizes the Agent to file, and if requested will deliver to
the Agent, all financing statements and other documents and take such other
actions as may from time to time be requested by the Agent, in its Permitted
Discretion, in order to maintain a first perfected security interest in and, if
applicable, Control of, the Collateral owned by such Grantor. Any financing
statement filed by the Agent may be filed in any filing office in any UCC
jurisdiction and may (i) indicate such Grantor’s Collateral (1) as all assets
of the Grantor or words of similar effect, regardless of whether any particular
asset comprised in the Collateral falls within the scope of Article 9 of the
UCC or such jurisdiction, or (2) by any other description which reasonably
approximates the description contained in this Security Agreement, and (ii)
contain any other information required by part 5 of Article 9 of the UCC for
the sufficiency or filing office acceptance of any financing statement or
amendment, including (A) whether such Grantor is an organization, the type of
organization and any organization identification number issued to such Grantor,
and (B) in the case of a financing statement filed as a fixture filing or
indicating such Grantor’s Collateral as as-extracted collateral or timber to be
cut, a sufficient description of real Property to which the Collateral relates.
Such Grantor also agrees to furnish any such information to the Agent promptly
upon request. Such Grantor also ratifies its authorization for the Agent to
have filed in any UCC jurisdiction any initial financing statements or
amendments thereto if filed prior to the date hereof.




          (c) Further Assurances. Such Grantor will, if so requested by the Agent,
furnish to the Agent, as often as the Agent requests, statements and schedules
further identifying and describing the Collateral owned by it and such other
reports and information in connection with its Collateral as the Agent may, in
its



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Permitted Discretion, request, all in such detail as the Agent may
specify. Such Grantor also agrees to take any and all actions necessary to
defend title to the Collateral owned by it against all persons and to defend
the security interest of the Agent in its Collateral and the priority thereof
against any Lien not expressly permitted hereunder.



          (d) Disposition of Collateral. Such Grantor will not sell, lease or
otherwise dispose of the Collateral owned by it except for dispositions
specifically permitted pursuant to Section 6.20 of the Credit Agreement.



          (e) Liens. Such Grantor will not create, incur, or suffer to exist any
Lien on the Collateral owned by it except (i) the security interest created by
this Security Agreement, and (ii) other Permitted Liens.



          (f) Other Financing Statements. Such Grantor will not authorize the
filing of any financing statement naming it as debtor covering all or any
portion of the Collateral owned by it, except as permitted by Section 4.1(e).
Such Grantor acknowledges that it is not authorized to file any financing
statement or amendment or termination statement with respect to any financing
statement without the prior written consent of the Agent, subject to such
Grantor’s rights under Section 9-509(d)(2) of the UCC.



          (g) Locations. Such Grantor will not (i) maintain any Collateral owned by
it at any location other than those locations listed on Exhibit A, (ii)
otherwise change, or add to, such locations without the Agent’s prior written
consent as required by the Credit Agreement (and if the Agent gives such
consent, the Grantor will concurrently therewith obtain a Collateral Access
Agreement for each such location to the extent required by the Credit
Agreement), or (iii) change its principal place of business or chief executive
office from the location identified on Exhibit A, other than as permitted by
the Credit Agreement.



          (h) Compliance with Terms. Such Grantor will perform and comply with all
obligations in respect of the Collateral owned by it and all agreements to
which it is a party or by which it is bound relating to such Collateral.



     4.2. Receivables.



          (a) Certain Agreements on Receivables. Such Grantor will not make or
agree to make any discount, credit, rebate or other reduction in the original
amount owing on a Receivable or accept in satisfaction of a Receivable less
than the original amount thereof, except that, prior to the occurrence of a
Default, such Grantor may reduce the amount of Accounts arising from the sale
of Inventory in accordance with its present policies and in the ordinary course
of business.



          (b) Collection of Receivables. Except as otherwise provided in this
Security Agreement, such Grantor will, at such Grantor’s sole expense, collect
and enforce, to the extent commercially reasonable, all amounts due or
hereafter due to such Grantor under the Receivables owned by it.



          (c) Delivery of Invoices. Such Grantor will deliver to the Agent
immediately upon its request duplicate invoices with respect to each Account
owned by it bearing such language of assignment as the Agent shall specify.



          (d) Disclosure of Counterclaims on Receivables. If (i) any material
discount, credit or agreement to make a rebate or to otherwise reduce the
amount owing on any Receivable owned by such Grantor



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exists or (ii) if, to the knowledge of such Grantor, any dispute, setoff,
claim, counterclaim or defense exists or has been asserted or threatened with
respect to any such Receivable, such Grantor will promptly disclose such fact
to the Agent in writing. Such Grantor shall send the Agent a copy of each
credit memorandum in excess of $250,000 as soon as issued, and such Grantor
shall promptly report each credit memo and each of the facts required to be
disclosed to the Agent in accordance with this Section 4.2(d) on the Borrowing
Base Certificates submitted by it.



          (e) Electronic Chattel Paper. Such Grantor shall take all steps necessary
to grant the Agent Control of all electronic chattel paper in accordance with
the UCC and all “transferable records” as defined in each of the Uniform
Electronic Transactions Act and the Electronic Signatures in Global and
National Commerce Act.



     4.3. Inventory and Equipment.



          (a) Maintenance of Goods. Such Grantor will do all things necessary to
maintain, preserve, protect and keep its Inventory and the Equipment in good
repair and working and saleable condition, except for damaged or defective
goods arising in the ordinary course of such Grantor’s business and except for
ordinary wear and tear in respect of the Equipment.



          (b) Returned Inventory. If an Account Debtor returns any Inventory to
such Grantor when no Event of Default exists, then such Grantor shall promptly
determine the reason for such return and shall issue a credit memorandum to the
Account Debtor in the appropriate amount. Such Grantor shall promptly report
to the Agent any return involving an amount in excess of $500,000. Each such
report shall indicate the reasons for the returns and the locations and
condition of the returned Inventory. In the event any Account Debtor returns
Inventory to such Grantor when an Event of Default exists, such Grantor, upon
the request of the Agent, shall: (i) hold the returned Inventory in trust for
the Agent; (ii) segregate all returned Inventory from all of its other
property; (iii) dispose of the returned Inventory solely according to the
Agent’s written instructions; and (iv) not issue any credits or allowances with
respect thereto without the Agent’s prior written consent. All returned
Inventory shall be subject to the Agent’s Liens thereon. Whenever any
Inventory is returned, the related Account shall be deemed ineligible to the
extent of the amount owing by the Account Debtor with respect to such returned
Inventory and such returned Inventory shall not be Eligible Inventory.



          (c) Inventory Count; Perpetual Inventory System. Such Grantor will
conduct a physical count of its Inventory at least once per Fiscal Year, and
after and during the continuation of an Event of Default, at such other times
as the Agent requests. Such Grantor, at its own expense, shall deliver to the
Agent the results of each physical verification, which such Grantor has made,
or has caused any other Person to make on its behalf, of all or any portion of
its Inventory. Such Grantor will maintain a perpetual inventory reporting
system at all times.



          (d) Equipment. Such Grantor shall promptly inform the Agent of any
additions to or deletions from its Equipment which individually exceed
$100,000. Such Grantor shall not permit any Equipment to become a fixture with
respect to real property or to become an accession with respect to other
personal property with respect to which real or personal property the Agent
does not have a Lien. Such Grantor will not, without the Agent’s prior written
consent, alter or remove any identifying symbol or number on any of such
Grantor’s Equipment constituting Collateral.



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     4.4. Delivery of Instruments, Securities, Chattel Paper and Documents.
Such Grantor will (a) deliver to the Agent immediately upon execution of this
Security Agreement the originals of all Chattel Paper, Securities and
Instruments constituting Collateral owned by it (if any then exist), (b) hold
in trust for the Agent upon receipt and immediately thereafter deliver to the
Agent any such Chattel Paper, Securities and Instruments constituting
Collateral, (c) upon the Agent’s request, deliver to the Agent (and thereafter
hold in trust for the Agent upon receipt and immediately deliver to the Agent)
any Document evidencing or constituting Collateral and (d) upon the Agent’s
request, deliver to the Agent a duly executed amendment to this Security
Agreement, in the form of Exhibit I hereto (the “Amendment”), pursuant to which
such Grantor will pledge such additional Collateral. Such Grantor hereby
authorizes the Agent to attach each Amendment to this Security Agreement and
agrees that all additional Collateral owned by it set forth in such Amendments
shall be considered to be part of the Collateral.



     4.5. Uncertificated Pledged Collateral. Such Grantor will permit the Agent
from time to time to cause the appropriate issuers (and, if held with a
securities intermediary, such securities intermediary) of uncertificated
securities or other types of Pledged Collateral owned by it not represented by
certificates to mark their books and records with the numbers and face amounts
of all such uncertificated securities or other types of Pledged Collateral not
represented by certificates and all rollovers and replacements therefor to
reflect the Lien of the Agent granted pursuant to this Security Agreement.
With respect to any Pledged Collateral owned by it, such Grantor will take any
actions necessary to cause (a) the issuers of uncertificated securities which
are Pledged Collateral and (b) any securities intermediary which is the holder
of any such Pledged Collateral, to cause the Agent to have and retain Control
over such Pledged Collateral. Without limiting the foregoing, such Grantor
will, with respect to any such Pledged Collateral held with a securities
intermediary, cause such securities intermediary to enter into a control
agreement with the Agent, in form and substance reasonably satisfactory to the
Agent, giving the Agent Control.



     4.6. Pledged Collateral.



          (a) Changes in Capital Structure of Issuers. Except as expressly
permitted under the Credit Agreement, such Grantor will not (i) permit or
suffer any issuer of Capital Stock constituting Pledged Collateral owned by it
to dissolve, merge, liquidate, retire any of its Capital Stock or other
Instruments or Securities evidencing ownership, reduce its capital, sell or
encumber all or substantially all of its assets (except for Permitted Liens and
sales of assets permitted pursuant to Section 4.1(d)) or merge or consolidate
with any other entity (other than in connection with a Permitted Acquisition),
or (ii) vote any such Pledged Collateral in favor of any of the foregoing.



          (b) Issuance of Additional Securities. Such Grantor will not permit or
suffer the issuer of Capital Stock constituting Pledged Collateral owned by it
to issue additional Capital Stock, any right to receive the same or any right
to receive earnings, except to such Grantor.



          (c) Registration of Pledged Collateral. Such Grantor will permit any
registerable Pledged Collateral owned by it to be registered in the name of the
Agent or its nominee at any time at the option of the Required Secured Parties.



          (d) Exercise of Rights in Pledged Collateral.




(i) Without in any way limiting the foregoing and subject to
clause (ii) below, such Grantor shall have the right to
exercise all voting rights or other rights relating to



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the Pledged Collateral owned by it for all purposes not
inconsistent with this Security Agreement, the Credit
Agreement or any other Loan Document; provided however, that
no vote or other right shall be exercised or action taken
which would have the effect of impairing the rights of the
Agent in respect of such Pledged Collateral.




(ii) Such Grantor will permit the Agent or its nominee at any
time after the occurrence of a Default, without notice, to
exercise all voting rights or other rights relating to the
Pledged Collateral owned by it, including, without limitation,
exchange, subscription or any other rights, privileges, or
options pertaining to any Capital Stock or Investment Property
constituting such Pledged Collateral as if it were the
absolute owner thereof.




(iii) Such Grantor shall be entitled to collect and receive
for its own use all cash dividends and interest paid in
respect of the Pledged Collateral owned by it to the extent
not in violation of the Credit Agreement other than any of the
following distributions and payments (collectively referred to
as the “Excluded Payments”): (A) dividends and interest paid
or payable other than in cash in respect of such Pledged
Collateral, and instruments and other property received,
receivable or otherwise distributed in respect of, or in
exchange for, such Pledged Collateral; (B) dividends and
other distributions paid or payable in cash in respect of such
Pledged Collateral in connection with a partial or total
liquidation or dissolution or in connection with a reduction
of capital, capital surplus or paid-in capital of an issuer;
and (C) cash paid, payable or otherwise distributed, in
respect of principal of, or in redemption of, or in exchange
for, such Pledged Collateral; provided however, that until
actually paid, all rights to such distributions shall remain
subject to the Lien created by this Security Agreement; and




(iv) All Excluded Payments and all other distributions in
respect of any of the Pledged Collateral owned by such
Grantor, whenever paid or made, shall be delivered to the
Agent to hold as Pledged Collateral and shall, if received by
such Grantor, be received in trust for the benefit of the
Agent, be segregated from the other property or funds of such
Grantor, and be forthwith delivered to the Agent as Pledged
Collateral in the same form as so received (with any necessary
endorsement).



     4.7. Intellectual Property.



          (a) Such Grantor will use its best efforts to secure all consents and
approvals necessary or appropriate for the assignment to or benefit of the
Agent of any License held by such Grantor and to enforce the security interests
granted hereunder.



          (b) Such Grantor shall notify the Agent immediately if it knows or has
reason to know that any application or registration relating to any Patent,
Trademark or Copyright (now or hereafter existing) may become abandoned or
dedicated, or of any adverse determination or development (including the
institution of, or any such determination or development in, any proceeding in
the United States Patent and Trademark Office, the United States Copyright
Office or any court) regarding such Grantor’s ownership of any Patent,
Trademark or Copyright, its right to register the same, or to keep and maintain
the same.



APC PLEDGE AND SECURITY AGREEMENT — Page 13




 









 








          (c) In no event shall such Grantor, either directly or through any the
Agent, employee, licensee or designee, file an application for the registration
of any Patent, Trademark or Copyright with the United States Patent and
Trademark Office, the United States Copyright Office or any similar office or
agency without giving the Agent prior written notice thereof, and, upon request
of the Agent, such Grantor shall execute and deliver any and all security
agreements as the Agent may reasonably request to evidence the Agent’s first
priority security interest on such Patent, Trademark or Copyright, and the
General Intangibles of such Grantor relating thereto or represented thereby.



          (d) Such Grantor shall take all actions necessary or requested by the
Agent to maintain and pursue each application, to obtain the relevant
registration and to maintain the registration of each of its Patents,
Trademarks and Copyrights (now or hereafter existing), including the filing of
applications for renewal, affidavits of use, affidavits of noncontestability
and opposition and interference and cancellation proceedings, unless the Agent
shall, in its Permitted Discretion, determine that such Patent, Trademark or
Copyright is not material to the conduct of such Grantor’s business.



          (e) Such Grantor shall, unless it shall reasonably determine that such
Patent, Trademark or Copyright is in no way material to the conduct of its
business or operations, promptly sue for infringement, misappropriation or
dilution and to recover any and all damages for such infringement,
misappropriation or dilution, and shall take such other actions as the Agent
shall deem appropriate under the circumstances to protect such Patent,
Trademark or Copyright. In the event that such Grantor institutes suit because
any of its Patents, Trademarks or Copyrights constituting Collateral is
infringed upon, or misappropriated or diluted by a third party, such Grantor
shall comply with Section 4.8.



     4.8. Commercial Tort Claims. Such Grantor shall promptly, and in any
event within two Business Days after the same is acquired by it, notify the
Agent of any commercial tort claim (as defined in the UCC) acquired by it and,
unless the Agent otherwise consents, such Grantor shall enter into an amendment
to this Security Agreement, in the form of Exhibit I hereto, granting to Agent
a first priority security interest in such commercial tort claim.



     4.9. Letter-of-Credit Rights. If such Grantor is or becomes the
beneficiary of a letter of credit, it shall promptly, and in any event within
two Business Days after becoming a beneficiary, notify the Agent thereof and
cause the issuer and/or confirmation bank to (i) consent to the assignment of
any Letter-of-Credit Rights to the Agent and (ii) agree to direct all payments
thereunder to a Deposit Account at the Agent or subject to a Deposit Account
Control Agreement for application to the Secured Obligations, in accordance
with Section 2.18 of the Credit Agreement, all in form and substance reasonably
satisfactory to the Agent.



     4.10. Federal, State or Municipal Claims. Such Grantor will promptly
notify the Agent of any Collateral which constitutes a claim against the United
States government or any state or local government or any instrumentality or
agency thereof, the assignment of which claim is restricted by federal, state
or municipal law.



     4.11. No Interference. Such Grantor agrees that it will not interfere
with any right, power and remedy of the Agent provided for in this Security
Agreement or now or hereafter existing at law or in equity or by statute or
otherwise, or the exercise or beginning of the exercise by the Agent of any one
or more of such rights, powers or remedies.



APC PLEDGE AND SECURITY AGREEMENT — Page 14




 









 








     4.12. Assigned Contracts. Such Grantor will use its best efforts to secure
all consents and approvals necessary or appropriate for the assignment to or
for the benefit of the Agent of any Assigned Contract held by such Grantor and
to enforce the security interests granted hereunder. Such Grantor shall fully
perform all of its obligations under each of its Assigned Contracts, and shall
enforce all of its rights and remedies thereunder, in each case, as it deems
appropriate in its business judgment; provided however, that such Grantor shall
not take any action or fail to take any action with respect to its Assigned
Contracts which would cause the termination of a material Assigned Contract.
Without limiting the generality of the foregoing, such Grantor shall take all
action necessary or appropriate to permit, and shall not take any action which
would have any materially adverse effect upon, the full enforcement of all
indemnification rights under its Assigned Contracts. Such Grantor shall notify
the Agent and the Lenders in writing, promptly after such Grantor becomes aware
thereof, of any event or fact which could give rise to a material claim by it
for indemnification under any of its Assigned Contracts, and shall diligently
pursue such right (if commercially reasonable) and report to the Agent on all
further developments with respect thereto. Such Grantor shall deposit into a
Deposit Account at the Agent or subject to a Deposit Account Control Agreement
for application to the Secured Obligations, in accordance with Section 2.18 of
the Credit Agreement, all amounts received by such Grantor as indemnification
or otherwise pursuant to its Assigned Contracts. If such Grantor shall fail
after the Agent’s demand to pursue diligently any right under its Assigned
Contracts, or if a Default then exists, the Agent may, and at the direction of
the Required Secured Parties shall, directly enforce such right in its own or
such Grantor’s name and may enter into such settlements or other agreements
with respect thereto as the Agent or the Required Secured Parties, as
applicable, shall determine. In any suit, proceeding or action brought by the
Agent for the benefit of the Lenders under any Assigned Contract for any sum
owing thereunder or to enforce any provision thereof, such Grantor shall
indemnify and hold the Agent and Lenders harmless from and against all expense,
loss or damage suffered by reason of any defense, setoff, counterclaims,
recoupment, or reduction of liability whatsoever of the obligor thereunder
arising out of a breach by such Grantor of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing from
such Grantor to or in favor of such obligor or its successors, except to the
extent attributable to the gross negligence or willful misconduct of the
indemnified party. All such obligations of such Grantor shall be and remain
enforceable only against such Grantor and shall not be enforceable against the
Agent or the Lenders. Notwithstanding any provision hereof to the contrary,
such Grantor shall at all times remain liable to observe and perform all of its
duties and obligations under its Assigned Contracts, and the Agent’s or any
Lender’s exercise of any of their respective rights with respect to the
Collateral shall not release such Grantor from any of such duties and
obligations. Neither the Agent nor any Lender shall be obligated to perform or
fulfill any of such Grantor’s duties or obligations under its Assigned
Contracts or to make any payment thereunder, or to make any inquiry as to the
nature or sufficiency of any payment or property received by it thereunder or
the sufficiency of performance by any party thereunder, or to present or file
any claim, or to take any action to collect or enforce any performance, any
payment of any amounts, or any delivery of any property.



ARTICLE V

DEFAULTS AND REMEDIES




     5.1. Defaults. The occurrence of any one or more of the following events
shall constitute a Default hereunder:



          (a) Any representation or warranty made by or on behalf of any Grantor
under or in connection with this Security Agreement shall be materially false
as of the date on which made.



APC PLEDGE AND SECURITY AGREEMENT — Page 15




 









 








          (b) The breach by any Grantor of any of the terms or provisions of Article
IV or Article VII which is not remedied within three (3) days after the earlier
of such breach or written notice from the Agent or any Lender.



          (c) The breach by any Grantor (other than a breach which constitutes a
Default under any other Section of this Article V) of any of the terms or
provisions of this Security Agreement which is not remedied within fifteen (15)
days after the earlier of such breach or written notice from the Agent or any
Lender.



          (d) The occurrence of any “Default” under, and as defined in, the Credit
Agreement.



          (e) Any Capital Stock which is included within the Collateral shall at any
time constitute a Security or the issuer of any such Capital Stock shall take
any action to have such interests treated as a Security unless (i) all
certificates or other documents constituting such Security have been delivered
to the Agent and such Security is properly defined as such under Article 8 of
the UCC of the applicable jurisdiction, whether as a result of actions by the
issuer thereof or otherwise, or (ii) the Agent has entered into a control
agreement with the issuer of such Security or with a securities intermediary
relating to such Security and such Security is defined as such under Article 8
of the UCC of the applicable jurisdiction, whether as a result of actions by
the issuer thereof or otherwise.



     5.2. Remedies.



          (a) Upon the occurrence of a Default, the Agent may, exercise any or all
of the following rights and remedies:




(i) those rights and remedies provided in this Security
Agreement, the IP Security Agreements, the Credit Agreement,
or any other Loan Document; provided that, this Section 5.2(a)
shall not be understood to limit any rights or remedies
available to the Agent and the Lenders prior to a Default;




(ii) those rights and remedies available to a secured party
under the UCC (whether or not the UCC applies to the affected
Collateral) or under any other applicable law (including,
without limitation, any law governing the exercise of a bank’s
right of setoff or bankers’ lien) when a debtor is in default
under a security agreement;




(iii) give notice of sole control or any other instruction
under any Deposit Account Control Agreement or and other
control agreement with any securities intermediary and take
any action therein with respect to such Collateral;




(iv) without notice (except as specifically provided in
Section 8.1 or elsewhere herein), demand or advertisement of
any kind to any Grantor or any other Person, enter the
premises of any Grantor where any Collateral is located
(through self-help and without judicial process) to collect,
receive, assemble, process, appropriate, sell, lease, assign,
grant an option or options to purchase or otherwise dispose
of, deliver, or realize upon, the Collateral or any part
thereof in one or more parcels at public or private sale or
sales (which sales may be adjourned or continued from time to
time with or without notice and may take place at any
Grantor’s premises or elsewhere), for cash,



APC PLEDGE AND SECURITY AGREEMENT — Page 16




 









 









on credit or for future delivery without assumption of any
credit risk, and upon such other terms as the Agent may deem
commercially reasonable; and




(v) concurrently with written notice to the applicable
Grantor, transfer and register in its name or in the name of
its nominee the whole or any part of the Pledged Collateral,
to exchange certificates or instruments representing or
evidencing Pledged Collateral for certificates or instruments
of smaller or larger denominations, to exercise the voting and
all other rights as a holder with respect thereto, to collect
and receive all cash dividends, interest, principal and other
distributions made thereon and to otherwise act with respect
to the Pledged Collateral as though the Agent was the outright
owner thereof.



          (b) The Agent, on behalf of the Lenders, may comply with any applicable
state or federal law requirements in connection with a disposition of the
Collateral and compliance will not be considered to adversely affect the
commercial reasonableness of any sale of the Collateral.



          (c) The Agent shall have the right upon any such public sale or sales and,
to the extent permitted by law, upon any such private sale or sales, to
purchase for the benefit of the Agent and the Lenders, the whole or any part of
the Collateral so sold, free of any right of equity redemption, which equity
redemption each Grantor hereby expressly releases.



          (d) Until the Agent is able to effect a sale, lease, or other disposition
of Collateral, the Agent shall have the right to hold or use Collateral, or any
part thereof, to the extent that it deems appropriate for the purpose of
preserving Collateral or its value or for any other purpose deemed appropriate
by the Agent. The Agent may, if it so elects, seek the appointment of a
receiver or keeper to take possession of Collateral and to enforce any of the
Agent’s remedies (for the benefit of the Agent and Lenders), with respect to
such appointment without prior notice or hearing as to such appointment.



          (e) If, after the Credit Agreement has terminated by its terms and all of
the Obligations have been paid in full, there remain Rate Management
Obligations outstanding, the Required Secured Parties may exercise the remedies
provided in this Section 5.2 upon the occurrence of any event which would allow
or require the termination or acceleration of any Rate Management Obligations
pursuant to the terms of the agreement governing any Rate Management
Transaction.



          (f) Notwithstanding the foregoing, neither the Agent nor the Lenders shall
be required to (i) make any demand upon, or pursue or exhaust any of their
rights or remedies against, any Grantor, any other obligor, guarantor, pledgor
or any other Person with respect to the payment of the Secured Obligations or
to pursue or exhaust any of their rights or remedies with respect to any
Collateral therefor or any direct or indirect guarantee thereof, (ii) marshal
the Collateral or any guarantee of the Secured Obligations or to resort to the
Collateral or any such guarantee in any particular order, or (iii) effect a
public sale of any Collateral.



          (g) Each Grantor recognizes that the Agent may be unable to effect a
public sale of any or all the Pledged Collateral and may be compelled to resort
to one or more private sales thereof in accordance with clause (a) above. Each
Grantor also acknowledges that any private sale may result in prices and other
terms less favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall not
be deemed to have been made in a commercially unreasonable manner solely by
virtue of such sale being private. The Agent shall be under no obligation to
delay a sale of



APC PLEDGE AND SECURITY AGREEMENT — Page 17




 









 








any of the Pledged Collateral for the period of time necessary to permit
any Grantor or the issuer of the Pledged Collateral to register such securities
for public sale under the Securities Act of 1933, as amended, or under
applicable state securities laws, even if the applicable Grantor and the issuer
would agree to do so.



     5.3. Grantor’s Obligations Upon Default. Upon the request of the Agent
after the occurrence of a Default, each Grantor will:



          (a) assemble and make available to the Agent the Collateral and all books
and records relating thereto at any place or places specified by the Agent,
whether at a Grantor’s premises or elsewhere;



          (b) permit the Agent, by the Agent’s representatives and agents, to enter
any premises where all or any part of the Collateral, or the books and records
relating thereto, or both, are located, to take possession of all or any part
of the Collateral or the books and records relating thereto, or both, to remove
all or any part of the Collateral or the books and records relating thereto, or
both, and to conduct sales of the Collateral;



          (c) prepare and file, or cause an issuer of Pledged Collateral to prepare
and file, with the Securities and Exchange Commission or any other applicable
government agency, registration statements, a prospectus and such other
documentation in connection with the Pledged Collateral as the Agent may
request, all in form and substance satisfactory to the Agent, and furnish to
the Agent, or cause an issuer of Pledged Collateral to furnish to the Agent,
any information regarding the Pledged Collateral in such detail as the Agent
may specify;



          (d) take, or cause an issuer of Pledged Collateral to take, any and all
actions necessary to register or qualify the Pledged Collateral to enable the
Agent to consummate a public sale or other disposition of the Pledged
Collateral; and



          (e) at its own expense, cause independent certified public accountants
engaged by each Grantor to prepare and deliver to the Agent and each Lender, at
any time, and from time to time, promptly upon the Agent’s request, the
following reports with respect to the applicable Grantor: (i) a reconciliation
of all Accounts; (ii) an aging of all Accounts; (iii) trial balances; and (iv)
a test verification of such Accounts.



     5.4. Grant of Intellectual Property License. For the purpose of enabling
the Agent to exercise the rights and remedies under this Article V and under
the IP Security Agreements, at such time as the Agent shall be lawfully
entitled to exercise such rights and remedies, each Grantor hereby (a) grants
to the Agent, for the benefit of the Agent and the Lenders, an irrevocable,
nonexclusive license (exercisable without payment of royalty or other
compensation to any Grantor) to use, license or sublicense any Intellectual
Property Rights now owned or hereafter acquired by such Grantor, and wherever
the same may be located, and including in such license access to all media in
which any of the licensed items may be recorded or stored and to all computer
software and programs used for the compilation or printout thereof and (b)
irrevocably agrees that the Agent may sell any of such Grantor’s Inventory
directly to any person, including without limitation persons who have
previously purchased the Grantor’s Inventory from such Grantor and in
connection with any such sale or other enforcement of the Agent’s rights under
this Security Agreement, may sell Inventory which bears any Trademark owned by
or licensed to such Grantor and any Inventory that is covered by any Copyright
owned by or licensed to such Grantor and the Agent may finish any work in
process and affix any Trademark owned by or licensed to such Grantor and sell
such Inventory as provided herein.



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ARTICLE VI

ACCOUNT VERIFICATION; ATTORNEY IN FACT; PROXY




     6.1. Account Verification. At any time after the occurrence of a Default
or an Unmatured Default or at any time before the occurrence of a Default or an
Unmatured Default that the Agent in its Permitted Discretion determines it has
a reasonable basis for making inquiry, the Agent may, in the Agent’s own name,
in the name of a nominee of the Agent, or in the name of any Grantor
communicate (by mail, telephone, facsimile or otherwise) with the Account
Debtors of any such Grantor, parties to contracts with any such Grantor and
obligors in respect of Instruments of any such Grantor to verify with such
Persons, to the Agent’s satisfaction, the existence, amount, terms of, and any
other matter relating to, Accounts, Instruments, Chattel Paper, payment
intangibles and/or other Receivables.



     6.2. Authorization for Secured Party to Take Certain Action.



          (a) Each Grantor irrevocably authorizes the Agent at any time and from
time to time in the sole discretion of the Agent and appoints the Agent as its
attorney in fact (i) to execute on behalf of such Grantor as debtor and to file
financing statements necessary or desirable in the Agent’s sole discretion to
perfect and to maintain the perfection and priority of the Agent’s security
interest in the Collateral, (ii) to endorse and collect any cash proceeds of
the Collateral, (iii) to file a carbon, photographic or other reproduction of
this Security Agreement or any financing statement with respect to the
Collateral as a financing statement and to file any other financing statement
or amendment of a financing statement (which does not add new collateral or add
a debtor) in such offices as the Agent in its sole discretion deems necessary
or desirable to perfect and to maintain the perfection and priority of the
Agent’s security interest in the Collateral, (iv) to contact and enter into one
or more agreements with the issuers of uncertificated securities which are
Pledged Collateral or with securities intermediaries holding Pledged Collateral
as may be necessary or advisable to give the Agent Control over such Pledged
Collateral, (v) to apply the proceeds of any Collateral received by the Agent
to the Secured Obligations as provided in Section 7.3, (vi) to discharge past
due taxes, assessments, charges, fees or Liens on the Collateral (except for
such Liens as are specifically permitted hereunder), (vii) to contact Account
Debtors for any reason, (viii) to demand payment or enforce payment of the
Receivables in the name of the Agent or such Grantor and to endorse any and all
checks, drafts, and other instruments for the payment of money relating to the
Receivables, (ix) to sign such Grantor’s name on any invoice or bill of lading
relating to the Receivables, drafts against any Account Debtor of such Grantor,
assignments and verifications of Receivables, (x) to exercise all of such
Grantor’s rights and remedies with respect to the collection of the Receivables
and any other Collateral, (xi) to settle, adjust, compromise, extend or renew
the Receivables, (xii) to settle, adjust or compromise any legal proceedings
brought to collect Receivables, (xiii) to prepare, file and sign such Grantor’s
name on a proof of claim in bankruptcy or similar document against any Account
Debtor of such Grantor, (xiv) to prepare, file and sign such Grantor’s name on
any notice of Lien, assignment or satisfaction of Lien or similar document in
connection with the Receivables, (xv) to change the address for delivery of
mail addressed to such Grantor to such address as the Agent may designate and
to receive, open and dispose of all mail addressed to such Grantor, and (xvi)
to do all other acts and things reasonably necessary to carry out this Security
Agreement; and such Grantor agrees to reimburse the Agent on demand for any
payment made or any expense incurred by the Agent in connection with any of the
foregoing; provided that, this authorization shall not relieve such Grantor of
any of its obligations under this Security Agreement, the IP Security
Agreements or under the Credit Agreement.



APC PLEDGE AND SECURITY AGREEMENT — Page 19




 









 








          (b) All acts of said attorney or designee are hereby ratified and
approved. The powers conferred on the Agent, for the benefit of the Agent and
Lenders, under this Section 6.2 are solely to protect the Agent’s interests in
the Collateral and shall not impose any duty upon the Agent or any Lender to
exercise any such powers.



     6.3. Proxy. EACH GRANTOR HEREBY IRREVOCABLY CONSTITUTES AND APPOINTS THE
AGENT AS ITS PROXY AND ATTORNEY-IN-FACT (AS SET FORTH IN SECTION 6.2 ABOVE)
WITH RESPECT TO ITS PLEDGED COLLATERAL, INCLUDING THE RIGHT TO VOTE SUCH
PLEDGED COLLATERAL, WITH FULL POWER OF SUBSTITUTION TO DO SO. IN ADDITION TO
THE RIGHT TO VOTE ANY SUCH PLEDGED COLLATERAL, THE APPOINTMENT OF THE AGENT AS
PROXY AND ATTORNEY-IN-FACT SHALL INCLUDE THE RIGHT TO EXERCISE ALL OTHER
RIGHTS, POWERS, PRIVILEGES AND REMEDIES TO WHICH A HOLDER OF SUCH PLEDGED
COLLATERAL WOULD BE ENTITLED (INCLUDING GIVING OR WITHHOLDING WRITTEN CONSENTS
OF SHAREHOLDERS, CALLING SPECIAL MEETINGS OF SHAREHOLDERS AND VOTING AT SUCH
MEETINGS). SUCH PROXY SHALL BE EFFECTIVE, AUTOMATICALLY AND WITHOUT THE
NECESSITY OF ANY ACTION (INCLUDING ANY TRANSFER OF ANY SUCH PLEDGED COLLATERAL
ON THE RECORD BOOKS OF THE ISSUER THEREOF) BY ANY PERSON (INCLUDING THE ISSUER
OF SUCH PLEDGED COLLATERAL OR ANY OFFICER OR THE AGENT THEREOF), DURING THE
CONTINUANCE OF A DEFAULT.



     6.4. Nature of Appointment; Limitation of Duty. THE APPOINTMENT OF THE
AGENT AS PROXY AND ATTORNEY-IN-FACT IN THIS ARTICLE VI IS COUPLED WITH AN
INTEREST AND SHALL BE IRREVOCABLE UNTIL THE DATE ON WHICH THIS SECURITY
AGREEMENT IS TERMINATED IN ACCORDANCE WITH SECTION 8.15. NOTWITHSTANDING
ANYTHING CONTAINED HEREIN, NEITHER THE AGENT, NOR ANY LENDER, NOR OR ANY OF
THEIR RESPECTIVE AFFILIATES, OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES SHALL HAVE ANY DUTY TO EXERCISE ANY RIGHT OR POWER GRANTED
HEREUNDER OR OTHERWISE OR TO PRESERVE THE SAME AND SHALL NOT BE LIABLE FOR ANY
FAILURE TO DO SO OR FOR ANY DELAY IN DOING SO, EXCEPT IN RESPECT OF DAMAGES
ATTRIBUTABLE SOLELY TO THEIR OWN GROSS NEGLIGENCE OR WILLFUL MISCONDUCT AS
FINALLY DETERMINED BY A COURT OF COMPETENT JURISDICTION; PROVIDED THAT, IN NO
EVENT SHALL THEY BE LIABLE FOR ANY PUNITIVE, EXEMPLARY, INDIRECT OR
CONSEQUENTIAL DAMAGES.



ARTICLE VII

COLLECTION AND APPLICATION OF COLLATERAL PROCEEDS; DEPOSIT ACCOUNTS




     7.1. Collection of Receivables.



          (a) Within thirty (30) days of the Closing Date, each Grantor shall (a)
execute and deliver to the Agent Deposit Account Control Agreements for each
Deposit Account maintained by such Grantor into which all cash, checks or other
similar payments relating to or constituting payments made in respect of
Receivables will be deposited (a “Collateral Deposit Account”), which
Collateral Deposit Accounts are identified as such on Exhibit B, and (b)
establish lock box service (the “Lock Boxes”) with the bank(s) set forth in
Exhibit B, which lock boxes shall be subject to irrevocable lockbox agreements
in the form provided by or otherwise acceptable to the Agent in its Permitted
Discretion and shall be accompanied by an acknowledgment by the bank where the
Lock Box is located of the Lien of the Agent granted hereunder and of
irrevocable



APC PLEDGE AND SECURITY AGREEMENT — Page 20




 









 








instructions to wire all amounts collected therein to the Collection
Account (a “Lock Box Agreement”). After the Closing Date, each Grantor will
comply with the terms of Section 7.2.



          (b) Each Grantor shall direct all of its Account Debtors to forward
payments directly to Lock Boxes subject to Lock Box Agreements. The Agent
shall have sole access to the Lock Boxes at all times and each Grantor shall
take all actions necessary to grant the Agent such sole access. At no time
shall any Grantor remove any item from a Lock Box or from a Collateral Deposit
Account without the Agent’s prior written consent. If any Grantor should
refuse or neglect to notify any Account Debtor to forward payments directly to
a Lock Box subject to a Lock Box Agreement after notice from the Agent, the
Agent shall be entitled to make such notification directly to Account Debtor.
If notwithstanding the foregoing instructions, any Grantor receives any
proceeds of any Receivables, such Grantor shall receive such payments as the
Agent’s trustee, and shall immediately deposit all cash, checks or other
similar payments related to or constituting payments made in respect of
Receivables received by it to a Collateral Deposit Account. All funds
deposited into any Lock Box subject to a Lock Box Agreement or a Collateral
Deposit Account will be swept on a daily basis into a collection account
maintained by the Borrower Representative with the Agent (the “Collection
Account”). The Agent shall hold and apply funds received into the Collection
Account as provided by the terms of Section 7.3.



     7.2. Covenant Regarding New Deposit Accounts; Lock Boxes. Before opening
or replacing any Collateral Deposit Account, other Deposit Account, or
establishing a new Lock Box, each Grantor shall (a) obtain the Agent’s consent
in writing to the opening of such Deposit Account or Lock Box, and (b) cause
each bank or financial institution in which it seeks to open (i) a Deposit
Account, to enter into a Deposit Account Control Agreement with the Agent in
order to give the Agent Control of such Deposit Account, or (ii) a Lock Box, to
enter into a Lock Box Agreement with the Agent in order to give the Agent
Control of the Lock Box. In the case of Deposit Accounts or Lock Boxes
maintained with Lenders, the terms of such letter shall be subject to the
provisions of the Credit Agreement regarding setoffs.



     7.3. Application of Proceeds; Deficiency. All amounts deposited in the
Collection Account shall be deemed received by the Agent in accordance with
Section 2.17 of the Credit Agreement and shall, after having been credited in
immediately available funds to the Collection Account, be applied (and
allocated) by Agent in accordance with Section 2.18 of the Credit Agreement.
In no event shall any amount be so applied unless and until such amount shall
have been credited in immediately available funds to the Collection Account.
The Agent shall require all other cash proceeds of the Collateral, which are
not required to be applied to the Obligations pursuant to Section 2.15 of the
Credit Agreement, to be deposited in a special non-interest bearing cash
collateral account with the Agent and held there as security for the Secured
Obligations. No Grantor shall have any control whatsoever over said cash
collateral account. Any such proceeds of the Collateral shall be applied in
the order set forth in Section 2.18 of the Credit Agreement unless a court of
competent jurisdiction shall otherwise direct. The balance, if any, after all
of the Secured Obligations have been satisfied, shall be deposited by the Agent
into the Borrower Representative’s general operating account with the Agent.
The Grantors shall remain liable for any deficiency if the proceeds of any sale
or disposition of the Collateral are insufficient to pay all Secured
Obligations, including any attorneys’ fees and other expenses incurred by Agent
or any Lender to collect such deficiency.



ARTICLE VIII

GENERAL PROVISIONS




APC PLEDGE AND SECURITY AGREEMENT — Page 21




 









 








     8.1. Waivers. Each Grantor hereby waives notice of the time and place of
any public sale or the time after which any private sale or other disposition
of all or any part of the Collateral may be made. To the extent such notice
may not be waived under applicable law, any notice made shall be deemed
reasonable if sent to the Grantors, addressed as set forth in Article IX, at
least ten days prior to (i) the date of any such public sale or (ii) the time
after which any such private sale or other disposition may be made. To the
maximum extent permitted by applicable law, each Grantor waives all claims,
damages, and demands against the Agent or any Lender arising out of the
repossession, retention or sale of the Collateral, except such as arise solely
out of the gross negligence or willful misconduct of the Agent or such Lender
as finally determined by a court of competent jurisdiction. To the extent it
may lawfully do so, each Grantor absolutely and irrevocably waives and
relinquishes the benefit and advantage of, and covenants not to assert against
the Agent or any Lender, any valuation, stay, appraisal, extension, moratorium,
redemption or similar laws and any and all rights or defenses it may have as a
surety now or hereafter existing which, but for this provision, might be
applicable to the sale of any Collateral made under the judgment, order or
decree of any court, or privately under the power of sale conferred by this
Security Agreement, the IP Security Agreements or otherwise. Except as
otherwise specifically provided herein or in the Credit Agreement, each Grantor
hereby waives presentment, demand, protest or any notice (to the maximum extent
permitted by applicable law) of any kind in connection with this Security
Agreement, the IP Security Agreements or any Collateral.



     8.2. Limitation on Agent’s and Lenders’ Duty with Respect to the
Collateral. The Agent shall have no obligation to clean-up or otherwise
prepare the Collateral for sale. The Agent and each Lender shall use reasonable
care with respect to the Collateral in its possession or under its control.
Neither the Agent nor any Lender shall have any other duty as to any Collateral
in its possession or control or in the possession or control of any agent or
nominee of the Agent or such Lender, or any income thereon or as to the
preservation of rights against prior parties or any other rights pertaining
thereto. To the extent that applicable law imposes duties on the Agent to
exercise remedies in a commercially reasonable manner, each Grantor
acknowledges and agrees that it is commercially reasonable for the Agent (i) to
fail to incur expenses deemed significant by the Agent to prepare Collateral
for disposition or otherwise to transform raw material or work in process into
finished goods or other finished products for disposition, (ii) to fail to
obtain third party consents for access to Collateral to be disposed of, or to
obtain or, if not required by other law, to fail to obtain governmental or
third party consents for the collection or disposition of Collateral to be
collected or disposed of, (iii) to fail to exercise collection remedies against
Account Debtors or other Persons obligated on Collateral or to remove Liens on
or any adverse claims against Collateral, (iv) to exercise collection remedies
against Account Debtors and other Persons obligated on Collateral directly or
through the use of collection agencies and other collection specialists, (v) to
advertise dispositions of Collateral through publications or media of general
circulation, whether or not the Collateral is of a specialized nature, (vi) to
contact other Persons, whether or not in the same business as such Grantor, for
expressions of interest in acquiring all or any portion of such Collateral,
(vii) to hire one or more professional auctioneers to assist in the disposition
of Collateral, whether or not the Collateral is of a specialized nature, (viii)
to dispose of Collateral by utilizing internet sites that provide for the
auction of assets of the types included in the Collateral or that have the
reasonable capacity of doing so, or that match buyers and sellers of assets,
(ix) to dispose of assets in wholesale rather than retail markets, (x) to
disclaim disposition warranties, such as title, possession or quiet enjoyment,
(xi) to purchase insurance or credit enhancements to insure the Agent against
risks of loss, collection or disposition of Collateral or to provide to the
Agent a guaranteed return from the collection or disposition of Collateral, or
(xii) to the extent deemed appropriate by the Agent, to obtain the services of
other brokers, investment bankers, consultants and other professionals to
assist the Agent in the collection or disposition of any of the Collateral.
Each Grantor acknowledges that the purpose of this Section 8.2 is to provide
non-exhaustive indications of what actions or omissions by the Agent would be
commercially reasonable in the Agent’s exercise of remedies against the



APC PLEDGE AND SECURITY AGREEMENT — Page 22




 









 








Collateral and that other actions or omissions by the Agent shall not be
deemed commercially unreasonable solely on account of not being indicated in
this Section 8.2. Without limitation upon the foregoing, nothing contained in
this Section 8.2 shall be construed to grant any rights to any Grantor or to
impose any duties on the Agent that would not have been granted or imposed by
this Security Agreement or by applicable law in the absence of this Section
8.2.



     8.3. Compromises and Collection of Collateral. The Grantors and the Agent
recognize that setoffs, counterclaims, defenses and other claims may be
asserted by obligors with respect to certain of the Receivables, that certain
of the Receivables may be or become uncollectible in whole or in part and that
the expense and probability of success in litigating a disputed Receivable may
exceed the amount that reasonably may be expected to be recovered with respect
to a Receivable. In view of the foregoing, each Grantor agrees that the Agent
may at any time and from time to time, if a Default has occurred and is
continuing, compromise with the obligor on any Receivable, accept in full
payment of any Receivable such amount as the Agent in its sole discretion shall
determine or abandon any Receivable, and any such action by the Agent shall be
commercially reasonable so long as the Agent acts in good faith based on
information known to it at the time it takes any such action.



     8.4. Secured Party Performance of Debtor Obligations. Without having any
obligation to do so, the Agent may perform or pay any obligation which any
Grantor has agreed to perform or pay in this Security Agreement and the
Grantors shall reimburse the Agent for any amounts paid by the Agent pursuant
to this Section 8.4. The Grantors’ obligation to reimburse the Agent pursuant
to the preceding sentence shall be a Secured Obligation payable on demand.



     8.5. Specific Performance of Certain Covenants. Each Grantor acknowledges
and agrees that a breach of any of the covenants contained in Sections 4.1(d),
4.1(e), 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 4.10, 4.12, 5.3, or 8.7 or in Article VII
will cause irreparable injury to the Agent and the Lenders, that the Agent and
Lenders have no adequate remedy at law in respect of such breaches and
therefore agrees, without limiting the right of the Agent or the Lenders to
seek and obtain specific performance of other obligations of the Grantors
contained in this Security Agreement, that the covenants of the Grantors
contained in the Sections referred to in this Section 8.5 shall be specifically
enforceable against the Grantors.



     8.6. Use and Possession of Certain Premises. During the continuance of a
Default, the Agent shall be entitled to occupy and use any premises owned or
leased by any Grantor where any of the Collateral or any records relating to
the Collateral are located until the Secured Obligations are paid or the
Collateral is removed therefrom, whichever first occurs, without any obligation
to pay any Grantor for such use and occupancy.



     8.7. Dispositions Not Authorized. No Grantor is authorized to sell or
otherwise dispose of the Collateral except as set forth in Section 4.1(d) and
notwithstanding any course of dealing between any Grantor and the Agent or
other conduct of the Agent, no authorization to sell or otherwise dispose of
the Collateral (except as set forth in Section 4.1(d)) shall be binding upon
the Agent or the Lenders unless such authorization is in writing signed by the
Agent with the consent or at the direction of the Required Secured Parties.



     8.8. No Waiver; Amendments; Cumulative Remedies. No delay or omission of
the Agent or any Lender to exercise any right or remedy granted under this
Security Agreement shall impair such right or remedy or be construed to be a
waiver of any Default or an acquiescence therein, and any single or partial
exercise of any such right or remedy shall not preclude any other or further
exercise thereof or the exercise of any other right or remedy. No waiver,
amendment or other variation of the terms, conditions or provisions of this
Security



APC PLEDGE AND SECURITY AGREEMENT — Page 23




 









 








Agreement whatsoever shall be valid unless in writing signed by the Agent
with the concurrence or at the direction of the Lenders required under Section
8.3 of the Credit Agreement and then only to the extent in such writing
specifically set forth. All rights and remedies contained in this Security
Agreement or by law afforded shall be cumulative and all shall be available to
the Agent and the Lenders until the Secured Obligations have been paid in full.



     8.9. Limitation by Law; Severability of Provisions. All rights, remedies
and powers provided in this Security Agreement may be exercised only to the
extent that the exercise thereof does not violate any applicable provision of
law, and all the provisions of this Security Agreement are intended to be
subject to all applicable mandatory provisions of law that may be controlling
and to be limited to the extent necessary so that they shall not render this
Security Agreement invalid, unenforceable or not entitled to be recorded or
registered, in whole or in part. Any provision in any this Security Agreement
that is held to be inoperative, unenforceable, or invalid in any jurisdiction
shall, as to that jurisdiction, be inoperative, unenforceable, or invalid
without affecting the remaining provisions in that jurisdiction or the
operation, enforceability, or validity of that provision in any other
jurisdiction, and to this end the provisions of this Security Agreement are
declared to be severable.



     8.10. Reinstatement. This Security Agreement shall remain in full force
and effect and continue to be effective should any petition be filed by or
against any Grantor for liquidation or reorganization, should any Grantor
become insolvent or make an assignment for the benefit of any creditor or
creditors or should a receiver or trustee be appointed for all or any
significant part of any Grantor’s assets, and shall continue to be effective or
be reinstated, as the case may be, if at any time payment and performance of
the Secured Obligations, or any part thereof, is, pursuant to applicable law,
rescinded or reduced in amount, or must otherwise be restored or returned by
any obligee of the Secured Obligations, whether as a “voidable preference,”
“fraudulent conveyance,” or otherwise, all as though such payment or
performance had not been made. In the event that any payment, or any part
thereof, is rescinded, reduced, restored or returned, the Secured Obligations
shall be reinstated and deemed reduced only by such amount paid and not so
rescinded, reduced, restored or returned.



     8.11. Benefit of Agreement. The terms and provisions of this Security
Agreement shall be binding upon and inure to the benefit of the Grantors, the
Agent and the Lenders and their respective successors and assigns (including
all persons who become bound as a debtor to this Security Agreement), except
that no Grantor shall have the right to assign its rights or delegate its
obligations under this Security Agreement or any interest herein, without the
prior written consent of the Agent. No sales of participations, assignments,
transfers, or other dispositions of any agreement governing the Secured
Obligations or any portion thereof or interest therein shall in any manner
impair the Lien granted to the Agent, for the benefit of the Agent and the
Lenders, hereunder.



     8.12. Survival of Representations. All representations and warranties of
the Grantors contained in this Security Agreement shall survive the execution
and delivery of this Security Agreement.



     8.13. Taxes and Expenses. Any taxes (including income taxes) payable or
ruled payable by Federal or State authority in respect of this Security
Agreement shall be paid by the Grantors, together with interest and penalties,
if any. The Grantors shall reimburse the Agent for any and all out-of-pocket
expenses and internal charges (including reasonable attorneys’, auditors’ and
accountants’ fees and reasonable time charges of attorneys, paralegals,
auditors and accountants who may be employees of the Agent) paid or incurred by
the Agent in connection with the preparation, execution, delivery,
administration, collection and enforcement of this Security Agreement and in
the audit, analysis, administration, collection, preservation or sale of the



APC PLEDGE AND SECURITY AGREEMENT — Page 24




 









 








Collateral (including the expenses and charges associated with any
periodic or special audit of the Collateral), subject to any limitations on the
amounts reimbursable set forth in the Credit Agreement. Any and all costs and
expenses incurred by the Grantors in the performance of actions required
pursuant to the terms hereof shall be borne solely by the Grantors.



     8.14. Headings. The title of and section headings in this Security
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the terms and provisions of this Security Agreement.



     8.15. Termination. This Security Agreement shall continue in effect
(notwithstanding the fact that from time to time there may be no Secured
Obligations outstanding) until (i) the Credit Agreement has terminated pursuant
to its express terms and (ii) all of the Secured Obligations have been
indefeasibly paid and performed in full (or with respect to any outstanding
Facility LCs, a cash deposit or Supporting Letter of Credit has been delivered
to the Agent as required by the Credit Agreement) and no commitments of the
Agent or the Lenders which would give rise to any Secured Obligations are
outstanding.



     8.16. Entire Agreement. This Security Agreement embodies the entire
agreement and understanding between the Grantors and the Agent relating to the
Collateral and supersedes all prior agreements and understandings between the
Grantors and the Agent relating to the Collateral.



     8.17. CHOICE OF LAW. THIS SECURITY AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS)
OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.



     8.18. CONSENT TO JURISDICTION. EACH GRANTOR HEREBY IRREVOCABLY SUBMITS TO
THE NON-EXCLUSIVE JURISDICTION OF ANY U.S. FEDERAL OR TEXAS STATE COURT SITTING
IN DALLAS, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
SECURITY AGREEMENT, THE IP SECURITY AGREEMENTS OR ANY OTHER LOAN DOCUMENT AND
EACH GRANTOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE
OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH
COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE
AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST ANY GRANTOR IN THE COURTS OF
ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY ANY GRANTOR AGAINST THE
AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH THIS SECURITY AGREEMENT, THE IP SECURITY AGREEMENTS OR ANY OTHER
LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.



     8.19. WAIVER OF JURY TRIAL. EACH GRANTOR, THE AGENT AND EACH LENDER
HEREBY WAIVE TRIAL BY JURY IN ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR
INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY
WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS



APC PLEDGE AND SECURITY AGREEMENT — Page 25




 









 








SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP
ESTABLISHED THEREUNDER.



     8.20. Indemnity. Each Grantor hereby agrees to indemnify the Agent and
the Lenders, and their respective successors, assigns, agents and employees,
from and against any and all liabilities, damages, penalties, suits, costs, and
expenses of any kind and nature (including, without limitation, all expenses of
litigation or preparation therefor whether or not the Agent or any Lender is a
party thereto) imposed on, incurred by or asserted against the Agent or the
Lenders, or their respective successors, assigns, agents and employees, in any
way relating to or arising out of this Security Agreement, or the manufacture,
purchase, acceptance, rejection, ownership, delivery, lease, possession, use,
operation, condition, sale, return or other disposition of any Collateral
(including, without limitation, latent and other defects, whether or not
discoverable by the Agent or the Lenders or any Grantor, and any claim for
Patent, Trademark or Copyright infringement), except that the foregoing
indemnity shall be limited to the extent any indemnified matter is solely
attributable to the gross negligence or willful misconduct of an indemnified
party.



     8.21. Counterparts. This Security Agreement may be executed in any number
of counterparts, all of which taken together shall constitute one agreement,
and any of the parties hereto may execute this Security Agreement by signing
any such counterpart.



     8.22. Section Titles. The Section titles contained in this Security
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not part of the agreement between the parties hereto.



     8.23. Amendment and Restatement. This Security Agreement, together with
the IP Security Agreements, are given in amendment, consolidation, restatement,
renewal and extension (but not in novation, extinguishment or satisfaction) of
all security agreements, pledge agreements, assignments and similar agreements
delivered pursuant to the Original Loan Agreement.



ARTICLE IX

NOTICES




     9.1. Sending Notices. Any notice required or permitted to be given under
this Security Agreement shall be sent by United States mail, telecopier,
personal delivery or nationally established overnight courier service, and
shall be deemed received (a) when received, if sent by hand or overnight
courier service, or mailed by certified or registered mail notices or (b) when
sent, if sent by telecopier (except that, if not given during normal business
hours for the recipient, shall be deemed to have been given at the opening of
business on the next Business Day for the recipient), in each case addressed to
the Grantors at the notice address set forth on Exhibit A, and to the Agent and
the Lenders at the addresses set forth in the Credit Agreement.



     9.2. Change in Address for Notices. Each of the Grantors, the Agent and
the Lenders may change the address for service of notice upon it by a notice in
writing to the other parties.



ARTICLE X

THE AGENT




APC PLEDGE AND SECURITY AGREEMENT — Page 26




 









 








     Bank One, NA has been appointed Agent for the Lenders hereunder pursuant
to Article X of the Credit Agreement. It is expressly understood and agreed by
the parties to this Security Agreement that any authority conferred upon the
Agent hereunder is subject to the terms of the delegation of authority made by
the Lenders to the Agent pursuant to the Credit Agreement, and that the Agent
has agreed to act (and any successor Agent shall act) as such hereunder only on
the express conditions contained in such Article X. Any successor Agent
appointed pursuant to Article X of the Credit Agreement shall be entitled to
all the rights, interests and benefits of the Agent hereunder.



[Signature Page Follows]




APC PLEDGE AND SECURITY AGREEMENT — Page 27




 









 








     IN WITNESS WHEREOF, the Grantors and the Agent have executed this Security
Agreement as of the date first above written.



	 	 	 	 	 	 	 
	 	 	GRANTORS:
	 
	 	 	 	 	 	 
	 	 	ACTION PERFORMANCE COMPANIES, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Chief Financial Officer, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	ACTION RACING COLLECTABLES, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	ACTION SPORTS IMAGE, L.L.C.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Chief Financial Officer, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	FUNLINE MERCHANDISE COMPANY, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Executive Vice President, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	JEFF HAMILTON COLLECTION, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	MCARTHUR TOWEL AND SPORTS, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	RACING COLLECTABLES CLUB OF AMERICA, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Secretary and Treasurer







APC PLEDGE AND SECURITY AGREEMENT




 









 








	 	 	 	 	 	 	 
	 	 	TREVCO TRADING CORP.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	ACTION CORPORATE SERVICES, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, President
	 
	 	 	 	 	 	 
	 	 	AW ACQUISITION CORP.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Chief Financial Officer, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	CREATIVE MARKETING & PROMOTIONS, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Chief Financial Officer, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	GORACING.COM, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Chief Financial Officer and Secretary
	 
	 	 	 	 	 	 
	 	 	GORACING INTERACTIVE SERVICES, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, President, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	RYP, INC.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Chief Financial Officer, Secretary and Treasurer
	 
	 	 	 	 	 	 
	 	 	THE FAN CLUB COMPANY, L.L.C.
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ R. David Martin	 	 
	

	 	 	 	
 	 
	 	 	R. David Martin, Vice President, Secretary and Treasurer







APC PLEDGE AND SECURITY AGREEMENT — Page 29




 









 








	 	 	 	 	 	 	 
	 	 	AGENT:
	 
	 	 	 	 	 	 
	 	 	BANK ONE, NA, as Agent
	 
	 	 	 	 	 	 
	

	 	By:
	 	/s/ Gary N. Fowler	 	 
	

	 	 	 	
 	 	 
	 	 	Name: Gary N. Fowler
	 	 	Title: Director







APC PLEDGE AND SECURITY AGREEMENT — Page 30